BlackRock Inc., the world's largest asset manager, suggests scaling back on lower-rated municipal debt even as the bonds rally the most in almost five years.

Investors in the $3.7 trillion municipal market are buying riskier issues for their higher yields as interest rates on 20- year bonds remain below their five-decade average. The extra yield investors demand to buy 10-year tax-exempt munis rated BBB, or eight steps below top-grade debt, has shrunk to 0.97 percentage point, close to the least since September 2008, data compiled by Bloomberg show.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.